PPP – Contract Forms

PPP stands for Public Private Partnership. The following are different contract forms in PPP:

  • Management contracts
  • Lease/Affermage
  • Concessions
  • Private Ownership of Assets

 

Management contracts:

In these contracts, the public sector retains the ownership of the contract and enters into an agreement with the private sector for managing a whole or a part of a public enterprise.

The public sector uses the skills and expertise of the private sector in labour management and procurement, service designing, operational control, etc. Under this contract, the private sector organisation is usually paid a performance-based fee.

Management contracts undertaken for certain typical purposes are as follows:

  • Supply or service contract
  • Maintenance management contract
  • Operational management contract
  • Turnkey projects

 

Lease/Affermage:

In a lease contract, the operator receives the revenue from the users of a facility and pays a (fixed) lease fee to the contracting authority, and thus takes on the risk of ensuring that the collections from the public are more than adequate to cover the lease fee.

However, in affermage, the operator and contractors share the revenues generated by the users of the facility. The investment in these projects is generally made by the government; the investment risks are also handled by the government. However, the operational risks need to be handled by the operator.

 

Concessions:

In this, a private entity is granted rights by the government to build and operate a facility for a particular period of time. This time period is called concession period. Government retains the ownership and the supplying rights of the services. The payments in such type of PPP can take place by the concessionaire to the government and also vice-versa.

The government makes a payment to the concessionaire (private entity) for meeting certain conditions, such as reducing the commercial risk of the private sector, especially in the initial period of project implementation. On the other hand, government receives payment from the concessionaire for granting concession rights to the concessionaire.

 

Private Ownership of Assets:

In this, the construction, designing and operation of a facility is done by the private sector. In some cases, the government may even handover the ownership rights of the assets to the private sector.

This type of PPP transfers the cost and risk associated with designing and construction of a facility from the government to the private sector. Private ownership of assets can be further divided into three categories.

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